Impossible to know if it's the start of a crash

Is this the beginning of a stock market crash we are seeing?

Nobody knows. The problem with stock market crashes is that you can only tell in retrospect when they start. And stops too for that matter.

Large declines are, however, a sign that all is not right in the market. On Thursday, the technology-heavy US Nasdaq stock exchange was down by no more than 5.5 percent. It's a high number but no crash and the price slide moderated somewhat towards the end of the trading day. The New York Stock Exchange was also dragged down, with a decline of just over 3 percent.

The question that has been asked for some time is whether technology companies linked to AI are a bubble or not. But because investors are uncertain, a decline like this can soon be followed by big gains.

Does today's situation have any similarities to how previous crashes started?

Yes and no. The situation now bears a strong resemblance to the IT crash in the early 2000s. But there are also significant differences.

First the similarity. Highly valued stocks. At the time, there were various IT companies that bet heavily on the internet bringing big profits. The valuations of shares in the IT sector were pumped up. Companies rose at rocket speed and pulled telecom giant Ericsson up with them.

But the companies were too early. Business ideas such as online shopping would prove profitable - but only many years later. The bubble burst with a loud bang. Almost 70 percent in the red on the Stockholm Stock Exchange during a few difficult years.

Today, artificial intelligence, AI, is the hot topic. Companies with connections to AI have risen sharply for several years. But the big difference is that they have already made big profits from their business. Very big wins. The IT companies never did that.

It remains to be seen if the AI ​​companies – which are making massive investments right now – can live up to the high expectations.

What triggers a stock market crash?

No crash is the same historically. At the time of the IT crash, there were overvalued shares. A few years later in 2007, the financial crisis began. It was about American banks sitting on toxic securities linked to mortgages. It spread in the American banking system and had severe consequences also globally.

It also led to the euro crisis a few years later. At the time, it was large government debts in countries such as Greece and Italy that created great concern in the markets.

When the covid pandemic took hold, share prices also fell sharply initially. At the time, it was feared that it would have severe consequences for the economy.

Now it remains to be seen whether the AI ​​concerns are the start of something bigger or just a temporary bump in the road.